India's services PMI slips to 4.5-year low of 53.3 in July as demand softens; hiring improves

India's services sector expanded at its slowest pace in four-and-a-half years in July as softer demand, intense competition and slower growth in new business weighed on activity, according to the HSBC India Services PMI survey released on Wednesday.

The seasonally adjusted HSBC India Services PMI Business Activity Index declined to 53.3 in July from 57.4 in June, marking the weakest reading in 53 months. While the index remained above the 50-mark, indicating continued expansion, the pace of growth slowed significantly.

The survey showed that business activity rose at its weakest rate since early 2022 as new business inflows moderated amid softer demand conditions and heightened competitive pressures.

"India's services sector continued to expand in July, albeit at a slightly slower pace, as new business growth eased in both domestic and export markets after several months of strong performance," said Pranjul Bhandari, Chief India Economist at HSBC.

New business growth slowed to its weakest pace since February 2022. Survey respondents attributed the moderation to fierce competition, fading demand, weaker market conditions and order postponements.

Hiring improves despite weaker demand

Employment growth picked up from a six-month low recorded in June, although hiring remained modest. Around 6% of surveyed firms reported an increase in staffing levels, while 92% said their workforce remained unchanged.

"Hiring showed a moderate rebound, while profit margins improved as input costs softened and firms increased their selling prices," Bhandari said.

Input costs rise, exports remain resilient

Service providers continued to face higher input costs during July, driven by increases in fuel, labour, material, technology and transportation expenses. However, firms were able to raise selling prices, supporting profit margins. New export business remained a bright spot, with companies reporting stronger demand from the UAE, UK and the US.

Business confidence remained positive, supported by expectations of improved demand, better market conditions, competitive pricing strategies and higher inbound tourism. However, overall optimism slipped to a seven-month low.

Composite PMI also weakens

The HSBC India Composite PMI Output Index, which combines manufacturing and services activity, eased to 54.3 in July from 57.1 in June, its weakest reading since March 2022. The slowdown was led by the services sector, while manufacturing output growth improved marginally during the month.

At the composite level, stronger hiring in the services sector more than offset slower employment growth in manufacturing, resulting in faster overall job creation.

Input cost inflation across the private sector eased to a six-month low, although firms raised selling prices at the fastest pace since April.